What to know about Tax Bankruptcy in Chicago

By Steven A. Leahy

Since bankruptcy can have a long-term negative impact on your financial life, it might be a big mistake to seek bankruptcy protection as a tax-relief option…if in the end it doesn’t relieve the tax pressure that you were seeking
to relieve in the first place.

In order for a tax debt to be discharged in bankruptcy, it must meet these criteria:

1. The tax debt must be related to a return that was due at least 3 years prior to the taxpayer declaring bankruptcy

2. The tax debt must be related to a tax return that was filed at least 2 years before the taxpayer files bankruptcy

I know that the above 2 conditions are a bit confusing. Let’s see if I can clear it up a bit:

For example – if you file bankruptcy in 2007, the tax debt that you are trying to eliminate should be from a return
due in 2004 or before (meeting the requirement of #1).

If you wish to eliminate the debt from 2004, you must have filed the return at least by 2005, which would meet the requirement in #2.

In other words, if you filed the 2004 returns late (say in 2006), you would not be able to eliminate the debt in bankruptcy in 2007, since 2 years had not yet passed since the return had been filed.

Think that’s complicated?

That’s only the beginning. There are many complicated rules when it comes to getting your tax debt taken care of in a bankruptcy. If you are in trouble with the IRS or have received notices that you owe taxes, we can help.Call Opem Tax Resolution – The Law Office of Steven A. Leahy, PC (312) 664-6649. Call to schedule your FREE 1 hour Consultation!

Why am I being Audited by the IRS?
By Steven A. Leahy

Being audited by the IRS can be a very stressful process. The right IRS audit help can help relieve your stress and make the process much smoother and easier.

An IRS audit is a review of your financial records to ensure that you are complying with tax law. There are three basic ways to be selected for an audit – you may be selected randomly, you may have a discrepancy on your return, or you may be flagged because someone you do business with is being audited.

Whatever the reason is that you are being audited by the IRS, getting the right kind of help with your audit can minimize critical mistakes and make you more likely to come out ahead during the audit process.

A qualified tax professional can go through your records and make sure everything is in order. Sometimes they are able to find past mistakes on your returns that are in your favor. This can provide leverage with the IRS.

If you are being audited by the IRS, contact our experienced tax law consultants today to schedule a free consultation. We can help you find the right solution for your situation.

Don’t go through an audit alone. If you are being audited by the IRS, or have received notice that you owe back taxes call Opem Tax Resolution – The Law Office of Steven A. Leahy, PC (312) 664-6649. Call Now to schedule your FREE 1 hour Consultation!

by Steven A. Leahy

Do you run a business? Do you have employees? If you do, you should know about the Trust Fund Recovery Penalty (TFRP). The Trust Fund Recovery Penalty is not really a penalty, in a general sense. Trust Fund Recovery Penalty is “an alternative means of collecting unpaid trust fund taxes when taxes are not fully collectible from the company/business that failed to pay the taxes.”

Let’s start at the beginning. Businesses with employees collect taxes and contributions to retirement benefits from their employees. When an employer deducts federal income taxes, social security and Medicare taxes from an employee’s paycheck, the employer holds those funds in trust until paid to the IRS. In addition, the employer is expected to match the employee’s payments of social security and Medicare and report those deductions and contributions on IRS Form 941, Employer’s Quarterly Federal Tax Return.

If the employer fails to pay those taxes to the IRS, after a time, the IRS will seek to collect those funds, plus penalties and interest, from the business. However, if the business doesn’t pay the 941 taxes due promptly, the IRS will look to the person or persons responsible for collecting, accounting and paying over the taxes to the IRS. The IRS defines a “responsible person” as:

One who had the duty to perform or the power to direct the act of collecting, accounting for, or paying over trust fund taxes.

The owner of a business is almost always a “responsible person.” 941 taxes include three components: Federal Income tax withheld from the employee; social security and Medicare taxes withheld from the employee; and, the employer’s contribution to social security and Medicare. The Trust Fund portion is that portion deducted from the employees’ pay check – Federal Income Tax and the employees’ contribution to social security and Medicare. The employer’s contribution to social security and Medicare is not part of the TFRP, because this tax was not paid by the employee and held in trust by the employer.

Often, the 941 business cases I see in my office turn into two cases – the IRS collects from the business and all of their assets (e.g. receivables, bank accounts, etc) and then begins collection efforts against the responsible person – often the owner of the business. When the IRS collects the TFRP they look to the personal assets of the responsible person (e.g. bank accounts, wages, etc.).

Another important fact to understand as a business owner: The Trust Fund Recovery Penalty is NEVER dischargable in bankruptcy. Most taxes, after a time, are discharagble in bankruptcy. However, because the business held the TFRP in trust, and these types of taxes have priority status, TFRP are not dischargable.

This article discussed the Trust Fund Recovery Penalty and 941 taxes. There are other types of taxes that have the trust status. For example, excise taxes (IRS form 720) and annual return for partnership withholding tax (IRS form 8804) can also be identified as TFRP.

So, if you are in business and withholding funds for the benefit of others, you should be aware of your exposure to this form of tax. If you have failed to file your 941 returns, or have failed to pay the 941 taxes as they came due, you should consult with a local attorney who can help protect you from the IRS’s collection actions. Before you do anything, you should give me a call. We can discuss your options to see if you can avoid a Trust Fund Recovery Penalty, or work out options with the IRS to keep your business in operation. – Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.

IRS Audits

There are generally three reasons that a person or company will be audited by the IRS. The first is random selection. The second is a discrepancy in their paperwork, and the third is having someone you do business with be audited.

If you are being audited by the IRS, it is important to get the right IRS audit help. The right help can reduce your stress level and may reduce the amount of penalties and taxes the IRS finds during the audit process.

It doesn’t matter the reason that you are audited, but it is important to understand that when you are, the IRS will go through all of your records with a fine-tooth comb. And while you can represent yourself in an audit, it is usually a good idea to get IRS audit help instead.

When you get experienced, professional representation in an audit, they will go through your records before the IRS does. Having a broad knowledge of tax law, they will be able to anticipate any problems and create a strategy for dealing with those problems. Our team has years of experience with tax audits and other tax issues.

Don’t go through an audit alone. If you are being audited by the IRS, or have received notice that you owe back taxes, call our experienced tax law consultants today for a free consultation. We will help create a custom solution specific to your situation.

Don’t go through an audit alone. If you are being audited by the IRS, or have received notice that you owe back taxes call Opem Tax Resolution – The Law Office of Steven A. Leahy, PC (312) 664-6649. Call Now to schedule your FREE 1 hour Consultation!

by Steven A. Leahy

Being able to Qualify for Chapter 7 bankruptcy is a misnomer. Everyone can file a Chapter 7 bankruptcy – but not everyone who files will receive a discharge of their debts. Back in 2005 Congress changed the bankruptcy laws to include a means test. The means test looks at a family’s gross income and compares it to the “average” income of a family of the same size. If that family’s income is higher than the mean income, it is presumed that is would be abusive for that person to receive a discharge under Chapter 7 of the bankruptcy code.

Instead, the code anticipates that a Chapter 13 would be more appropriate for over the mean debtors. Under Chapter 13, an over the mean Debtor is required to dedicate their disposable income, as determined by Bankruptcy Form 22C, for 60 months (5 years). Only after completing the plan can that debtor receive a discharge of their debts. Most Debtors favor Chapter 7 over Chapter 13.

Simply looking at a person’s gross income and comparing that number to the mean is only the surface analysis. If this surface analysis indicates that the family’s income is over the mean, it is only a presumption that a Chapter 7 would be abusive. The presumption can be overcome by showing that the Debtor’s disposable income will not allow creditors to receive any meaningful pay out in a Chapter 13 plan.

The more detailed analysis begins with Bankruptcy Form 22A. Debtors are to report all income, from whatever source, for the previous six (6) months. The income is annualized and then averaged over twelve (12) months. The next step is to determine monthly expenses and deduct those expenses from the average monthly income.

Many of the allowable expenses are determined from IRS standards, rather than actual expenses. For example, housing expenses are determined by where the Debtor lives and how many people live in the house. Transportation expenses are determined by the age of the vehicles, and if a vehicle is financed.

Next, actual taxes and payroll deductions are subtracted. Deductions for federal income tax, state income taxes, social security tax, Medicare tax, union dues, and mandatory pension contributions, are common deductions. The next deductions look to health insurance and life insurance contributions.

Finally, secured debt is deducted. This is the often overlooked deduction that allows over the mean debtors to overcome the presumption of abuse. The first section of secured debt includes a home mortgage, car payments and other secured debt (e.g. 2nd mortgages, house improvement payments, etc.). The last numbers, and often a large number, concern arrears in home mortgage payments. The longer a family is behind in mortgage payments, the greater the arrears used to overcome the presumption of abuse.

Interpretation of Bankruptcy Laws can vary according to district. So, if you are in foreclosure or considering bankruptcy, make sure you consult with a local attorney who will complete a comprehensive investigation of your case – not just a surface analysis. Before you do anything, you should give me a call. We can discuss your options to see if you can overcome the presumption of abuse and qualify for Chapter 7 bankruptcy. – Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.